Paper Titles in Periodical
International Letters of Social and Humanistic Sciences
Volume 26

Subscribe

Subscribe to our Newsletter and get informed about new publication regulary and special discounts for subscribers!

ILSHS > Volume 26 > Predicting Financial Stability of Select BSE...
< Back to Volume

Predicting Financial Stability of Select BSE Companies Revisiting Altman Z Score

Full Text PDF

Abstract:

In the era of globalization, prediction of financial distress is of interest not only to managers but also to external stakeholders of a company. The stakeholders are continuously seeking the optimal solution for performance forecasting, as a way to rationalize the decision-making process. The recent past shows that financial stability of companies is at the stake. Stockholders, Managers, Creditor and employees of the business are always concerned about financial stability of the companies. The most frequently tool for financial analysis is financial ratios. However, financial ratios are no-longer proved appropriate for „Stockholders‟ equity position and creditors‟ claims. Stakeholder‟s have concerns about the consequences of financial distress for companies, and controls of capital adequacy through the regulatory capital requirement (Mingo, 2000). This shared interest creates persistent investigations and continuing attempts to answer an incessant question that how financial distress can be predicted, or what reveals the credit risk of firms. For this purpose most commonly used tool is Altman Z score, but due to nature of the explanatory variables, financial distress prediction research has not reached an unequivocal conclusion. The primary goal of this paper is to analyze and reexamine the Altman Z score. In order to facilitate the current research, various ratios were taken from Altman‟s Z score. To fulfill our objective Z score ratios were used to divide sample firms into healthy and unstable among BSE-30 companies. First the Z score is calculated for 10 companies selected for this purpose for a period of 5 years each. And then it is divided as per z scores, later the significant in the changes in the ratio is calculated with the help of One sample Komogrov-Smirnow test, which resulted that the change in the z scores is not significant in case of all the companies.

Info:

Periodical:
International Letters of Social and Humanistic Sciences (Volume 26)
Pages:
92-105
DOI:
https://doi.org/10.18052/www.scipress.com/ILSHS.26.92
Citation:
V. Chouhan et al., "Predicting Financial Stability of Select BSE Companies Revisiting Altman Z Score", International Letters of Social and Humanistic Sciences, Vol. 26, pp. 92-105, 2014
Online since:
Apr 2014
Authors:
Vineet Chouhan, Bibhas Chandra, Shubham Goswami
Keywords:
Companies, Creditor, Employees of the Business, Komogrov-Smirnow, Managers, Stockholders
Export:
RIS, BibTeX, Text
Distribution:
Open Access

Creative Commons License
This work is licensed under a
Creative Commons Attribution 4.0 International License

References:

Alkhatib K., Al Bzour A. E., International Journal of Business and Management 6(3) (2011) 208-215.

Altman, E. I. Bankruptcy, Credit Risk and High Yield Junk Bonds. Blackwell (2002).

Altman E. I., Journal of Finance 23 (1968) 589-609.

Altman E.I., Haldeman R. G., Narayanan P., Journal of Banking and Finance 1 (1987) 29-54.

Aziz M. A., Dar H. A., Corporate Governance 6(1) (2006) 18-33.

Back B., Laitinen T., Sere K., Wezel M. Chooking, Bankruptcy Predictions Using Discriminant Analysis, Logit Analysis, and Genetic Algorithms. Technical Report, Turku Center for Computer Science (1996) 40.

Beaver W. H., Journal of Accounting Research 4 (1966) 71-111.

Begley J., Mining J., Watts S., Review of Accounting Studies 1(4) (1996) 267-284.

Ben-Horin M., Tcherikover (1996) 305-307.

Charitou A., Trigeogis L., Option-Based Bankruptcy Predicion Working paper University of Cypus (2002).

Chouhan V., The Pacific Business Review International 1 (2011) 70-75.

Chouhan V., Bhatt A., Vyas D., The Indian Journal of Business Administration 7 (2011) 149-162.

Chouhan V., The Indian Journal of Business Administration 6 (2010) 202-208.

Christopoulos A., Vergos K., How Stock prices react to managerial decisions and other profit signaling events in the Greek mobile telecom market?, 3rd International Conference on Applied Financial Economics, Samos Island, (2006).

Chung K. C., Tan S. S., Holdsworth D. K., International Journal of Business and Management 3(1) (2008) 19-29.

Deakin E. B., Business failure prediction: An empirical analysis. In E. Altman, & A. Sametz (Eds. ), Financial crises: Institutions and markets in a fragile environment. New York, John Wiley (1977).

Eden I., Meir Y., Roeh Haheshbon 5 (2007) 100-101.

Gerantonis N., Vergos K., Christopoulos A. G., Research Journal of International Studies 12 (2009) 21- 28.

Hillegeist S. A., Keeting E. K., Cram D. P., Lundstedt K. G., Assessing the Probability of Bankruptcy Working Paper, Northwestern University (2002).

Ingbar Y., Analysis of financial statement Israel Institute of Productivity. (Chapter 13). (1994).

Kim H., Gu Z., The Journal of Hospitality Financial Management 14(1) (2006) 17-34.

Lawson R., Journal of Investing 17(4) (2008) 38-55.

Lifschutz S., Jacobi A., International Journal of Business and Management 5(4) (2010) 133-141.

Muller G. H., B. W. Steyn-Bruwer, W. D. Hamman, South African Journal of Business Management 40(1) (2009) 21-32.

Odipo B. K., A.S. Itati, Evaluation of Applicability of ALTMAN'S Revised Model in Prediction of Financial Distress: A Case of Companies Quoted in the NAIROBI Stock Exchange (2011) 1-39.

Ohlson J., Journal of Accounting Research 18 (1) (1980) 109-131.

Santomero A. M., Vinso J. D., Journal of Banking and Finance 1 (1997) 185-205.

Smith R., A. Winakor, Changes in Financial Structure of Unsuccessful Industrial Corporations Bureau of Business Research, Bulletin No. 51. Urbana: University of Illinois Press (1935).

Taffler R. J., Lu J., Kausar A., Journal of Accounting & Economics 38(1-3) (2004) 263296.

Wang Y., Campbell M., Journal of Business and Management 16(1) (2010) 75-88.

Yu-Chiang Hu, Jake Ansell, Developing Financial Distress Prediction Models. A Study of US, Europe and Japan Retail Performance. University of Edinburgh, U. K (2005). ( Received 08 April 2014; accepted 15 April 2014 ).

Show More Hide